Denial of Potential Change Notices and Predicament of Apparent Non-Buildability

Dr. Chandana Jayalath
BSc (QS) Hons, MSc, DSc, FRICS, FIQSSL, MCIArb

(PUBLISHED IN ASSOCIATION WITH SLQS-QATAR ANNUAL GET TOGETHER 2015)

Preamble

Risks in construction projects are customarily allocated by a chain of contracts, a topic of which has long been contentious. Should design professionals be directly liable to contractors for deficiencies in the drawings and specifications? Why should the contractor be held liable for filling the gaps of errors and omissions? As an experienced contractor, had it not been foreseen in advance? Why the contractor cannot contemplate buildability in anyway? Such arguments usually bounce back and forth. On one hand, contractors necessarily rely on the design documents when bidding and performing the work. And, the architect or engineer knows there will be reliance on these representations. On the other hand, the design professional contracts with the project owner, not the constructors. The designer’s responsibilities – and liabilities – are to the owner.

What is reasonably inferred?

Most general contracts include the tenuous “reasonably inferred” language, which seems to me an elastic term. The drawings provided by design professionals may lack information in many respects, the effect or magnitude of which varies largely and the owner and design professionals seem to be leaning on the reasonably inferable language harder than ever to pass responsibility for design omissions. “Drawings are wrong” is a statement that covers a lot of possibilities. It seems to me of the drawings are wrong, the contractor is not often going to be damaged, If he builds a chair with uneven legs in accordance with the plans, he’s complied with the contract. If he prudently calls the problem to the owner’s attention, he suggests a change order with a contract price adjustment. Since there is no contract between the designer and the contractor, the contractor’s best recourse must be with the owner, who does have a contract with both the damaged party and the party at fault. The onus falls, of course, on the contractor to prove damages.

A key question is whether the employer, or the consultants on the employer’s behalf, actively search out any Potential Change Notices (PCN), quantify the changes, and mitigate the risks to project profitability as quickly and accurately as possible. Key areas for finding PCNs include design changes, owner requests for additional or changed work, unexpected field conditions, mistakes or oversights in design or construction management. Any of these issues could be initiated by an item that already exists as an action item, request for information (RFI), bulletin, meeting minutes, submittal, email message, etc.

Managing PCNs is time consuming, tedious and sometimes laborious. A project manager may easily be tracking 40-50 open PCOs at any point in time, each in a varying state of completion. Most will need extensive internal management review, and potentially an owner review and approval. This review essentially includes a contractual review as to whether the given PCNs warrants approval or denial on the basis of design liabilities, buildability and fit for purpose obligation, expressly or impliedly, imposed upon the contractor.

Is it design obligation?

For conventional construction contracts where the employer and contractor has a bilateral relationship for build only, contractor is basically responsible only to develop shop drawings based on contract drawings supplemented by the designer. Express provisions to hedge against design deficiencies as an obligation on the part of the contractor is indeed rare in traditional contracts. However, where the design is carried out by a third party for the employer, the specification and drawings will never detail everything that is required in order for the work to be built. The “design” which is then given to the contractor will always be incomplete to one extent or another, it being understood that the contractor will fill in any gaps as part of its obligation to complete the work.

In this context, it is imperative to understand what a design is all about. Design is a question of choosing the work process or materials with a view to achieving a particular end where the specification is open, the choice of material or the choice of work process will be left to the contractor. A design choice can, for example, include a decision to use a particular type of panel. Consequently, the contractor will always have design obligations, to some degree, and at least some visualization and deal with the technicalities appropriately. At one end of the spectrum it may choose the type of panel, and at the other end, the requirements of the employer may be very broadly explained in terms of quality, workmanship and performance which in turn the warranty of buildability arises.

Is buildability a warranty?

Since the contractor undertakes to carry out and complete the works, in circumstances where he encounters difficulties in executing the permanent design, his warranty of buildability may cause him serious exposure. He is contractually obliged to complete the whole of the works within the contract price which is in most times all-inclusive, fixed lump sum. Any acquittal for the contractor is only likely to be found where it is in the employer’s interests, as much as the interests of the contractor, for a problem to be resolved so that works can go on. Then, in the interests of his employer, the architect (or the engineer as the case may be) may, where the contract permits, should intervene as befits the circumstances. In practice, it is often the case that the employer wants to have the works completed so that he can gain access to the building to use it for the purposes for which it is being built. In these circumstances, the architect may help, indeed bound by conditions of engagement, the employer by providing a solution to the contractor’s predicament of apparent non-buildability.

Buildability is the province of the builder, however. An architect’s general duty as to his design is to ensure that the design is prepared with proper skill and care. This does not amount to a warranty as to the fitness for purpose of the design. The mere fact that a design lacks buildability would not be sufficient for liability to attach to the architect, engineer or other design professional taking such a role. It would have to be established that the architect or engineer failed to exercise due skill and care so as to ensure that his design did not lack buildability. For this reason it can become necessary for the contractor to look at the architects and engineers detailing to see if that might be materially at fault.

It should also be noted that the extent of an architect’s responsibility for the detailed working out of construction details for which he has provided an underlying design again depends on the express and implied terms of his engagement and its interrelation with the responsibility of others. The scope of any such responsibility depends on the facts of each case. There is a blurred borderline between architectural design and the construction details needed to put it into effect.

Unless the contract expressly stipulates to the contrary, the contractor is entitled to choose his own methods of working or temporary works; the corollary of this is that the contractor is not entitled, when faced with difficulties, to demand or require instructions as to how to overcome them. The architect’s duty is normally confined to stipulating the final permanent result required, and if this has already been done, he is under no further duty to assist, and if inclined or requested to do so, should normally be careful to adopt a permissive attitude rather than giving mandatory instructions.

Why fitness for purpose?

Meanwhile, a number of standard forms use express “fitness for purpose wording” nevertheless tie it to purposes expressly set out in the contract. For example, clause 4.1 of the FIDIC Silver, Yellow and Gold Books (Conditions of Contract for EPC/Turnkey Projects, Design and Build and Design Build, Operate contains the provision: “When completed, the Works shall be fit for the purposes for which the Works are intended as defined in the Contract.”

If the Employer makes it clear at the outset: what the specific requirement of the works is; and that he is relying on the contractor’s skill and judgment even where a contract does not include an express fitness for purpose obligation, there is the potential for a fitness for purpose obligation to be implied.

Where a contractor is both the designer and the contractor, unless the contract deals expressly with the point, a fitness for purpose obligation will often be implied into the terms of the contract. As a result, contractors unwilling or unable to take on a fitness for purpose obligation in their design and build contract should check the standard form includes wording that excludes fitness for purpose, or will need to propose their own. Conversely, where the contractor is not responsible for the design, an implied term requiring the works to be fit for their purpose is unlikely.

Summary

Chances to recover economic losses caused by errors in the drawings and specifications is a rare proposition. A contractor must look to its agreement with the owner for damages if the project is not as represented. In so far as further drawings or specifications are necessary to develop that design intent into something that can be built, the further drawings will be henceforth part of the design. In nutshell, the contractor has an implied obligation of buildability where the employer often has contractual ground to defend. This idea has been reinforced with the fitness for purpose, which is most of the times, implied into contracts. Each individual potential change notice should therefore be wetted from the perspective of the extent of design obligation, warranty of buildability and fitness for purpose and judge whether they are merely request for information constituting no contract price adjustment.